Saturday, June 3, 2017

Betsy DeVos should resign as Secretary of Education in the Trump administration. I say this for two reasons:First, Ms. DeVos is too nice a person to be President Trump's Secretary of Education.No matter what you think of her politics or her education philosophy Betsy DeVos is not a toxic person. She did not deserve to be shut out of a public school, as District of Columbia protesters tried to do shortly after she took office.And she did not deserve to have students boo her and turn their backs on her when she spoke at a college graduation exercise this spring. If I were her, I would tell the whole wide world to stick the Secretary of Education's position where the sun doesn't shine and go home to Michigan and spend time with my grandchildren.Second. Betsy DeVos knows next to nothing about higher education policy.The federal student loan program is in meltdown, destroying the lives of millions of people and undermining the integrity of higher education. Numerous small private liberal arts colleges are on the verge of closing; law schools are admitting students of a lower and lower quality, and huge swaths of the for-profit college industry are defrauding their students--or, at the very least, they are gouging their customers. The federal student loan program bears a big share of the blame for this dismal state of affairs.Betsy DeVos knows next to nothing about the student loan crisis. She has shown no capacity to deal with this enormous problem, and she has already made a number of missteps. For example, she hired some empty suits from the for-profit sector to advise her--the wrong move, in my opinion.Trump needs to hire a junkyard dog to run the Department of EducationPresident Trump needs to gracefully accept DeVos' resignation, praise her extravagantly in a tweet message, and then appoint a junkyard dog to replace her.By junkyard dog, I don't mean a vicious person or an unethical person; I mean a tough person. The next Education Secretary needs to be tough enough to confront the for-profit college industry, tough enough to handle higher education's legions of lobbyists, and tough enough to get rid of the student loan guaranty agencies that have amassed billions of dollars in cash hounding distressed student loan debtors.The next Secretary of Education needs to be tough enough to tell the public the truth about the student loan crisis, which is this: Millions of people have taken out student loans they will never pay back.What a junkyard dog do if appointed Education Secretary?

First, the Consumer Financial Protection Bureau's 2013 report, A Closer Look at the Trillion, needs to be updated. How many people have defaulted on their loans, and how many are delinquent? How many are not making payments because their loans are in deferment or forbearance? How many are in income-driven repayment plans (IDRs) and making monthly payments so low that their payments don't cover accruing interest?

Second, the new Secretary should endorse the Democrats' bill to protect student loan defaulters from having their Social Security checks garnished. This is a small matter in terms of the overall student loan crisis, but symbolically, such a move would signal that the Trump administration is not completely heartless.

Third, the Education Secretary should cancel the performance bonus program for DOE's student-loan bureaucrats. James Runcie, Chief Operating Officer for the student loan program, received $430,000 in bonuses--an outrage. The new Secretary of Education should fire everyone who got a performance bonus.

Fourth, the DOE Secretary needs to streamline the process whereby students who file administrative claims based on the closed-school rule or the so-called borrower defense can have their claims resolved quickly.

Sixth, the Secretary of Education, as junkyard dog, should revise Lynn Mahaffie's 2015 letter outlining when DOE will not oppose bankruptcy discharge of student loans to clarify to the federal courts that DOE supports a bankruptcy discharge of student loans under the same terms that apply to other unsecured consumer debt.

Obviously, any Secretary of Education who attempts to carry out the agenda I outlined will need to be tough as a junkyard dog. Betsy DeVos is not a junkyard dog, and I mean that as a compliment to her.

Who holds the record for accumulating the most debt while going to college and law school? I don't know, but it might be Scott Dufrane.Mr. Dufrane attended Thomas Jefferson Law School and graduated from the Maurice A. Deane School of Law at Hofstra University in 2009. He financed his undergraduate and legal education with student loans, and by the time he received his law degree, he had incurred debt of nearly a million dollars--or more specifically, $900,000.Dufrane filed for bankruptcy in 2015. At that time he owed the U.S. Department of Education approximately $400,000; and he owed various private creditors about $500,000. A short time after filing his bankruptcy petition, Dufrane filed an adversary complaint in an effort to discharge his private loans. In his complaint, he argued that the private loans fell outside the protection of the "undue hardship" rule and were dischargeable.Dufrane owed SunTrust Bank about $90,000, and SunTrust moved to dismiss Dufrane's adversary complaint on the grounds that the SunTrust loans were protected by 11 U.S.C. sec. 523(a)(8) and could not be discharged unless Dufrane met the "undue hardship" standard.But Dufrane had an answer to SunTrust's argument.He argued that the private loans were not "qualified student loans" under 11 U.S.C. sec. 528(a) (8) and could be discharged like any other nonsecured debt. Dufrane said that the private lenders had solicited him to borrow money while he was in school without any inquiry "regarding need, cost of tuition, or cost of any other education-related expense." In addition, the private lenders' solicitations "generally stated that the money could be used for anything, and that it would be disbursed directly to [Dufrane]" and not through any school.Moreover, Dufrane alleged, all the private loan money was disbursed directly to him "without any input, knowledge or approval of the Financial Aid Office . . ."Judge Peter Carroll, a California bankruptcy judge, agreed with Dufrane and ruled that the private loans were not the type of loan that Congress intended to exclude from bankruptcy relief. Judge Carroll acknowledged that federal courts were divided on this issue, but he agreed with courts that interpreted the law in harmony with Dufrane's position. Therefore, the judge denied SunTrust's motion to dismiss. Under the rationale of Judge Carroll's ruling, it seems possible that all $500,000 of Carroll's private loan debt will ultimately discharged.What is the significance of the Dufrane decision? First, as Judge Carroll pointed out, the federal courts are in disagreement about whether some private student loans are subject to the "undue hardship" rule, and this controversy may ultimately go to the Supreme Court. For now, however, student borrowers who responded to bank solicitations by taking out private loans and who received the money directly have an argument that those loans are dischargeable in bankruptcy like any other consumer loan.Second, the Dufrane case illustrates the recklessness of student-loan creditors--both the federal government and private banks. It was insane for the Department of Education to loan Dufrane $400,000 for college and lawschool studies. And of course it was insane for private lenders to loan Dufrane $500,000 while he was in law school.Almost no one who accumulates nearly a million dollars in debt to get a college degree and a law degree will ever be able to pay back that amount of money. Hofstra's law school is ranked 118 on the list of best law schools published by U.S. News & World Report. But even if Hofstra had graduated from Yale Law School at the top of his class, it is unlikely he would have obtained a job that would allow him to pay back $900,000.Millions of Americans are struggling with student-loan debt. Last year, student borrowers were defaulting at an average rate of 3,000 a day. The Department of Education is urging borrowers to enroll in income driven repayment plans (IDRs), but the Government Accountability Office reported last December that about half of a sample of people who signed up for IDRs failed to recertify their income as the program requires (p. 36). It seems obvious that IDRs are no magic bullet for the student-loan crisis.Bankruptcy relief is the only viable option for people whose student loans are out of control. Last month, Congressmen John Delaney (D-Maryland) and John Katko (R-New York) filed a bill to make student-loan debt dischargeable in bankruptcy like any other nonsecured loan. This bill is unlikely to become law in this Congressional session; but someday, Congress will be forced by reality to pass some form of the Delaney-Katko bill.ReferencesDufrane v. Navient Solutions, Inc. (In re Dufrane), 566 B.R. 28 (Bankr. C.D. Cal. 2017).

Thursday, June 1, 2017

Mills College is one of several dozen private liberal arts colleges that are struggling to survive. Rick Seltzer's excellent story on Mills, which appeared yesterday in Inside Higher Ed, reported that the college faced a $9 million budget gap in 2016 but was able to reduce the deficit to $4.3 million by making stringent cuts. Mills once filled a niche as an elite West Coast women's college, but apparently that identity isn't working anymore. Mills has less than 1,000 undergraduates and about 400 graduate students. It is struggling to find the revenue to fund a $57 million budget.So what's the solution? Mills' new president, Elizabeth Hillman, announced that Mills' top recruitment priority will be LGBTQ students--students who are lesbian, gay, bisexual, transgender or questioning.But how will a LGBTQ focus work at a women's college? Will it accept only bisexual women or can male bisexuals apply? In the Q for questioning category, will it accept biological males who are considering a female identity or just biological females who are pondering a male identity?Sounds complicated and confusing. Actually, it sounds desperate.And there's more. Mills' financial stabilization plan calls for a tuition reset. Currently, tuition is pegged at about $45,000 a year, but the college's discount rate is 57 percent. Clearly that pricing structure is not sustainable. Mills has a financial stabilization plan, but the details are hazy. "Whether it is a lower price or a more direct and straightforward price, we anticipate that we will also market the new curriculum and a tuition reset together much more heavily than in the past," the college says opaquely. What does Mills mean when it says it is considering "a more direct and straightforward price"? Is that an admission that its current pricing structure is dishonest?The college also hopes to enroll more women who are focused on science, technology. engineering, and mathematics (STEM). But the college's STEM focus will be hard to sustain when the college is cutting faculty positions and slashing employment benefits. Seltzer's article reports that Mills cut retirement contributions from 9 percent of a faculty member's salary to 6 percent and plans to reduce it further to 2 percent. Not a great benefits package. So how will Mills attract and retain the professors it needs to sharpen its focus on STEM?Finally, Mills plans to roll out a "signature experience" for undergraduates "in an attempt to stand out and attract students." What will that look like? It's not clear, and Seltzer's article asks a pertinent question: "[I]f many colleges have signature experiences, can any of them truly stand out?"I wish Mills College well, but the hodgepodge of strategies President Hillman sketched out does not impress me. More LGBTQ students, more STEM students, more straightforward pricing, a signature experience, slashing employment benefits---in my mind it all adds up to "quiet desperation" (Thoreau's phrase).At some point, liberal arts college leaders need to face facts: dozens of small colleges will close within the next ten years. They are the organizational equivalent of a terminally ill hospital patient. And when college trustees and administrators know that their institution is on life support, are they acting ethically when they continue to enroll new students? After all, there is a distinct possibility that the LGBTQ freshman (or freshperson) who enrolls at Mills in the fall of 2017 will be an alumna of a college that no longer exists in 2027.And is it ethical for college deans to hire junior faculty members who will start their careers at an institution that may not be around when they retire?All across the United States, private liberal arts colleges are on the ropes. Many are grasping for revenue-generating strategies like a dying person searching for a miracle drug. But there comes a time--and that time is fast approaching for many small liberal arts colleges--when a college should simply close.

Tuesday, May 30, 2017

Student loans cannot be discharged in bankruptcy. How often have you heard that said? But that bromide is not true. Student loans are being discharged--or at least partly discharged--in the bankruptcy courts every year.So if you are a distressed student borrower who will never pay back your student loans, why not attempt to discharge your college loans through bankruptcy? What have you got to lose?You say you don't have money to pay a lawyer to represent you in bankruptcy court? Then represent yourself. Again--what have you got to lose?This essay is a field guide for struggling debtors who are thinking about filing for bankruptcy to discharge their student loans. This is a difficult process, and not everyone will be successful. In fact, much depends upon drawing a sympathetic bankruptcy judge. But you will not know whether your college debt is dischargeable through bankruptcy unless you make the effort. So let's get started.I. The standard for discharging student loans in bankruptcy--the "undue hardship" rule.Section 523(a)(8) of the Bankruptcy Code states that a student loan cannot be discharged in bankruptcy unless the debtor can show that paying the loan would pose an "undue hardship" on the debtor and his or her dependents.Congress did not define undue hardship when it adopted this provision, so it has been left to the courts to define it. Most federal circuits have adopted the Brunner test, named for a 1987 federal court decision. The Brunner test contains three parts:

(1) that the
debtor cannot maintain, based on current income and expenses, a
"minimal" standard of living for herself and her dependents if forced
to repay the loans;

(2) that additional circumstances exist indicating that
this state of affairs is likely to
persist for a significant portion of the repayment period of the student loans; and

(3) that the debtor has made good faith efforts to repay the
loans.

Although most bankruptcy courts and federal appellate courts utilize the Brunner test when deciding student-loan bankruptcy cases, there is a remarkable variations among the courts about how the Brunner test is interpreted, with some courts interpreting it more favorably for debtors than others.II. Filing an adversary complaint
Filing for bankruptcy is a relatively straightforward process--particularly for people who have no assets. Many lawyers will walk you through a Chapter 7 bankruptcy for a flat fee.But discharging your federal student loans requires you to file an adversary action--a separate lawsuit--against your student loan creditors, which may be the U.S. Department of Education, a student loan guaranty agency, or one of the government's approved debt collectors. And if you have private student loans you will need to sue your private creditor as well.Drafting a complaint for your adversary action is not difficult; you can find forms on the web or in published bankruptcy guides.III. Gather your evidence before you filed your adversary complaintIn my view, you should gather all your documentary evidence before you file your adversary complaint. That evidence should include:

all the records you have of payments you made,

correspondence with your creditor,

documents supporting efforts you made to find employment,

evidence of health problems, disability status, and any other documents that support your claim that paying off your student loans would be an undue hardship.

In addition, if you negotiated with your creditor about entering into a long-term income-based repayment plan, gather the documents that show what efforts you made to explore repayment options.If relevant, you should also gather evidence showing the job market for your profession is bad. People who attended law school, for example, should provide evidence of the bad job market for newly graduated lawyers. If you failed the bar exam or another pertinent licensing exam, you should gather evidence establishing that fact.If you attended a for-profit school that has been found guilty of fraud or misrepresentation, you should obtain documents to educate the bankruptcy judge about your school's misbehavior.Why is it important to gather your evidence before you file your adversary complaint? Two reasons:First, one of the first things your creditor will do after you file your lawsuit is send you discovery requests: 1) interrogatories (questions) about your financial status and your expenses,2) requests for production of your documents, and3) requests for admissions (more about requests for admissions later.)Having your documents prepared in advance will enable you to respond to your creditor's requests for documents in a timely manner and will subtly communicate that you are prepared to have your case go to trial.Secondly, assembling your documents early will help you determine the strengths and weaknesses of your case before you file your adversary complaint. For example, if you are disabled or have medical problems, evidence about your health status will be helpful in establishing undue hardship.On the other hand, if you made few or no payments on your student loans over the years, that is a negative fact for you because the creditor will argue that you did not manage your loans in good faith. Courts have discharged student loans in several cases in which the student debtor made no voluntary loan payments, but you will want to be able to argue you that you meet the good faith test in spite of your spotty payment history.IV. Know the case law about student loans and bankruptcy in your jurisdiction.It is also important that you know how courts have ruled in student-loan cases in your jurisdiction. If you live within the boundaries of the Ninth Circuit, you will want to be familiar with the Roth decision, Hedlund, Scott and Nyes. If you live in the Tenth Circuit, you will want to know about the Polleys decision. If you are in the Seventh Circuit, the Krieger decision is important to you.V. Be psychologically prepared for a long court battle.Published court decisions show that the Department of Education and the student loan guaranty agencies are sometimes willing to fight student debtors in the courts for a long time. In the Hedlund case, for example, involving a law graduate who failed to pass the bar exam, the creditor fought Mr. Hedlund in the federal courts for ten years.Why do the student-loan creditors drag out litigation with bankrupt student borrowers? Two reasons: First, the student loan guaranty agencies are reimbursed by the federal government for their attorneys fees, so they have little incentive to stop litigating. And of course, the Department of Education has free government attorneys to represent its interests.Secondly, by filing appeals and driving up litigation costs, the Department of Education and the student loan guaranty agencies know they are demoralizing student debtors, making it more likely they will abandon their lawsuits. And of course, by imposing heavy financial and psychological costs on people who file adversary actions, the Department of Education knows that it is discouraging distressed debtors from even trying to discharge their student loans in bankruptcy.VI. Be appropriately suspicious of any document a creditor's attorney asks you to sign.Once you file your lawsuit, be aware of two potential dangers. First, the Department of Education or one its debt collectors will probably send you a "Request for Admissions." Do not ignore that document. If you fail to respond to a Request for Admissions, the statement you are asked to admit is deemed admitted. It is very important to remember that.Second, it is improper for a party to ask an opposing party to admit a principle of law. For example, it would be improper for a Request for Admission to ask you to admit that it would not be an undue hardship for you to repay your student loans.Obviously, you should answer all interrogatories and requests for admissions truthfully, but do not admit to propositions that you are unclear about or which you do not understand. If you do not know the answer to a question, it is permissible to state that you do not know.Similarly, don't sign a stipulations of facts that a creditors' attorneys asks you to sign unless you are very clear that signing a stipulation won't prejudice your case in court. And remember--when a government attorney waves a stipulation in your face and asks you to sign it, the attorney is not making that request to help you. The lawyer drafted that stipulation to help the government.VII. What do you do if you win your adversary action and the creditor appeals? In several instances, student-loan debtors have gone to court without an attorney and won their case. It has been my observation that some bankruptcy judges are sympathetic to people who are overwhelmed by student loan debt, and these judges have written remarkably thorough decisions ruling in the debtor's favor.But sometimes the creditor appeals, forcing the debtor to figure out how to file a strong appellate brief. For example, Alexandra Acosta-Conniff won a student-loan discharge in an Alabama bankruptcy court, and George and Melanie Johnson won their case before a Kansas bankruptcy judge. In both cases, the debtors were opposed by Educational Credit Management Corporation (ECMC); and in both cases, ECMC appealed.In my view, debtors need an attorney to represent them in appellate proceedings, so debtors who win their cases at the bankruptcy-court level without lawyers need to find an appellate lawyer to help them if their bankruptcy court victory is appealed.If it is absolutely impossible to hire an appellate attorney and you are forced to file an appellate brief without an attorney, then you should at least try to find appellate briefs filed in other cases to help you file your own appellate brief. You can contact me, and I will be happy to help you find pleadings that will be helpful to you.VIII. A few words about private student loansThanks to the deceptively named "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005," private student loans are as difficult to discharge in bankruptcy as federal student loans. For both types of loans, the "undue hardship" rule applies.To protect their own interests, the banks and other private student-loan defenders (Sallie Mae, etc.) usually require student borrowers to find a co-signer to guarantee the loan. Generally, the co-signer is a parent or other relative.So remember, even if you discharge a private student loan in bankruptcy, your co-signer is still liable to pay back the loan. And the co-signer, like you, must meet the "undue hardship" test if he or she tries to cancel the debt in bankruptcy.ConclusionThe student loan crisis grows worse with each passing month. As the New York Times noted recently, 1.1 million student borrowers defaulted on their student loans in 2016--that is an average of 3,000 defaults a day!Bankruptcy judges read the newspapers, and many of them have children or relatives who are overwhelmed by their student loans. I think the judges are beginning to be more sympathetic to "honest but unfortunate" student-loan debtors who acted in good faith and simply cannot pay back their student loans. Some student borrowers have a better case for a bankruptcy discharge than others, but hundreds of thousands of people have a decent shot at getting their student loans cancelled through bankruptcy if they just make the effort.Filing an adversary complaint in a bankruptcy court takes courage, fortitude and hard work--particularly in gathering evidence necessary to show a bankruptcy judge that repaying your student loans truly constitutes an undue hardship. And not everyone who seeks relief from student loans through bankruptcy will be successfulNevertheless, if you are a student debtor with crushing student loans, you should consider filing for bankruptcy. If, after careful thought, you determine that you have nothing to lose by filing, then you should file an adversary complaint and fight for relief from oppressive student debt. Others have been successful, and you too might be victorious in a federal bankruptcy court.ReferencesThe Wrong Move on Student Loans. New York Times, April 6, 2017.

Sunday, May 28, 2017

At last the secret is out. The federal student loan program is out of control and millions of borrowers cannot pay back their loans. As the New York Times pointed out recently, student debtors are defaulting at an average rate of 3,000 a day--more than a million people went into default last year alone.But the Department of Education hacks who oversee the student loan program have been paying themselves performance bonuses. James Runcie, Chief Operating Officer for DOE's student loan program, received $433,000 in bonuses; and then he resigned rather than testify before the House Oversight Committee about what the heck was going on in the student loan program.And Runcie was not the only DOE executive to get bonuses. The National Association of Student Financial Aid Administrators (NASFAA) released a report earlier this month that provides some useful information about how DOE's bonus program works.As the NASFAA report explains, the Federal Student Aid Office (FSA) set performance goals for the organization and then basically assessed itself with regard to whether the office met those goals. According to NASFAA, "self-assessments are a common way to begin performance evaluations, but they are usually signed off on by a person or board with oversight responsibility." The Federal Student Aid office, however, let its own evaluations stand "without pushback, oversight, or accountability, which often easily allows the organization to excuse away failure to meet goals and targets."FSA's self-assessment program permitted senior executives to get bonuses if they excelled at their work. The program identified three categories of performance: "exceptional," "high results," or "results achieved." Note that there was not even a category for poor performance.Senior people who scored "exceptional" or "high results" were eligible for bonuses; and not surprisingly, performance scores got higher and higher as the years went by. In FY 11, "66 percent of senior FSA leaders received an "exceptional" or "high results" performance rating that qualified them for bonuses. In FY 2015, 90 percent of senior administrators got those ratings.Correspondingly, the percentage of eligible employees who only scored "results achieved," making them ineligible for bonuses, decreased from 34 percent to only 10 percent between FY 2011 and FY 2015.Bottom line is this: In FY 2015, 89.8 percent of FSA senior administrators ranked high enough to get a cash bonus, and 89.8 percent of those administrators got cash bonuses. How big were the bonuses? I haven't seen a list showing bonus amounts and who got them. Huffington Post reported that that at least one bonus was $75,000.No wonder Mr. Runcie resigned rather than answer questions before the House Oversight Committee. "I cannot in good conscience continue to be accountable as Chief Operating officer given the risk associated with the current environment at the Education Department," he is quoted as saying.

What the hell does that mean? I have no idea. It must be one of those phrases Mr. Runcie learned when he was getting his MBA at Harvard.

Saturday, May 27, 2017

James Runcie, Chief Operating Officer for the Department of Education's Student Aid Office, resigned a few days ago rather than testify before the House Oversight Committee. Good riddance!Runcie, who has an MBA from Harvard, was appointed to the COO's position by the Obama administration in 2011. In December 2015, Secretary of Education Arne Duncan secretly reappointed Runcie to the position just before Duncan stepped down as Education Secretary. In fact, Runcie's reappointment was one of Duncan's last official acts.The Runcie-supervised student aid program has come under severe criticism over the last several years. Recently, the press reported that the program misspent a total of $6 billion in federal money in the Pell Grant program and the Direct Student Loan program. A Huffington Post article, published about a year ago, noted that "government investigators from other agencies routinely slammed Runcie's division for failing to aid distressed borrowers and protect students, or they unearthed evidence of mistreatment that Runcie's deputies missed."In fact, reports from multiple sources make clear that the Federal Student Aid office is a mess. The Government Accountability Office reported in December that DOE had underestimated the cost of its income-driven repayment programs. GAO concluded that the true cost was about double what DOE estimated.And in Price v. U.S. Department of Education, decided recently by a Texas federal court, we got a glimpse of how poorly DOE responds to student complaints. Phyllis Price, filed an administrative complaint seeking to have her student loans discharged because the University of Phoenix, the school she attended, had falsely certified that she had a high school diploma. DOE took six years to resolve Price's claim, and then it got it wrong. Price had to sue the Department to obtain the relief to which she was clearly entitled under federal law.But sloppy administration did not prevent James Runcie and his close cronies from getting big salaries and handsome performance bonuses. As the Huffington Post reported, the typical Federal Student Aid employee makes more than $100,000, about a third more than typical federal employees are paid.Runcie himself got a lot of bonus money. Just a few days ago, U.S. Congressman Jim Jordan (R-Ohio), accused Jordan of receiving $433,000 in performance bonuses while working for DOE!Just think how big his bonuses would have been had he performed his job competently?I hope the House Oversight Committee orders Runcie to appear under subpoena and explain what the hell he was doing while he was in charge of the Federal Student Aid program.It is probably impossible to get Runcie's bonus money back, but surely Congress can stop the Department of Education's practice of giving cash bonuses to people overseeing the federal student loan program--a program that has brought so much misery to millions of Americans.

Wednesday, May 24, 2017

Earlier this month, Congressmen John Delaney (D-Maryland) and John Katko (R-New York) filed a bill in the House of Representatives that would eliminate the "undue hardship" rule contained in 11 U.S.C sec. 523(a)(8). H.R. 2366, if adopted into law, would put student loans on par with credit card debt and other consumer debt, making student loans more easily dischargeable in bankruptcy. As Congressman Delaney put it, "It doesn’t make sense for students with heavy debt burdens to be worse off than someone with credit card debt or mortgage debt."How many student borrowers would qualify for bankruptcy relief if the Delaney-Katko bill becomes law?This could be a very big deal. If "the undue hardship" rule is struck from the Bankruptcy Code, millions of student borrowers could seek relief from their student loans. How many millions?We know from looking at a 2015 Brookings Institution report that nearly half the people from a recent cohort of borrowers who took out student loans to attend for-profit colleges defaulted within five years. Clearly, a great many of these people would qualify for bankruptcy relief.And the Federal Reserve Bank of New York reported recently that a third of student borrowers who owed $5,000 or less defaulted in five years, while 18 percent of the people who borrowed $100,000 or more defaulted. Assuming these defaulters are insolvent, nearly all them would be eligible for bankruptcy relief if the Delaney-Katko bill becomes law.Who will opposed this legislation?Obviously, most of the 44 million people weighed down by student-loan debt will support this bill. Who will opposed it?The bill would give bankruptcy relief for people who took out both federal student loans and private student loans. Private lenders who are heavily invested in the student-loan business--Wells Fargo, Sallie Mae, etc.--will oppose this bill fiercely; and their lobbyists are probably already at work.The nation's colleges and universities will also oppose this bill, but they won't be vocal about it. It is hard for universities to insist on getting billions of dollars in federal student-aid money every year while publicly opposing relief to people who went broke because they borrowed too much money to attend college.But make no mistake: the colleges and universities understand that the Delaney-Katko bill, if it becomes law, will unleash a floodgate of bankruptcy filings; and this deluge will force Congress to clean up the student-loan scandal. The colleges want the party to last a little while longer; and this legislation will help bring the party to an end if it ever gets enacted.In the past, beneficiaries of the student-loan boondoggle have used lobbyists and campaign contributions very effectively to protect their interests, while student debtors suffered in silence. But the tables may be about to turn. More than 40 million people are burdened by student-loan debt, and these people vote.Will the Delaney-Katko bill become law?What are the chances that the Delaney-Katko bill will become law? It is hard to say. A bill was introduced several years ago to stop the government from garnishing Social Security checks of student-loan defaulters and that bill never made it out of committee.So it is possible, that this bill will go nowhere. Nevertheless, I am impressed by the fact that the Delaney-Katko bill has been framed as a bipartisan initiative. So far, it has at least ten co-sponsors:Debbie Dingell (D-Michigan)Paul Tonko (D-New York)Kyrsten Lea Sinema (D-Arizona)Zoe Lofgren (D-California)*John Delaney (D-Maryland)*John Katko (R-New York)Edwin Perlmutter (D-Colorado)Alan Lowenthal (D-California)Catherine Castor (D-Florida)Marc Veasy (D-Texas)Let's all write our elected representatives and express our support for the Delaney-Katko bill.The Delaney-Katko bill, if it becomes law, will afford relief to millions of people who have been pushed out of the economy by student loans. Let's watch this bill closely and give it all the support we can.Every student-loan debtor should write his or her Senator and Congressperson to express support for the Delaney-Katko bill. They should stress that this proposed legislation is not radical. In fact, scholars and policy makers have advocated for years that distressed student-loan debtors should have easier access to the bankruptcy courts.And let's take a moment to salute the political courage of Representative John Katko of New York--the first Republican to support this legislation.

Published Articles

About Me

Richard Fossey is a professor at the University of Louisiana in Lafayette, Louisiana. He received his law degree from the University of Texas and his doctorate from Harvard Graduate School of Education. He is editor of Catholic Southwest, A Journal of History and Culture.